People using their credit card to take cash out will be charged more, as banks increase their transaction fees.

The already expensive process of using a credit card for a cash advance is about to get even more expensive, as Egg is increasing its minimum cash withdrawal fee, meaning credit card debts could worsen.

The provider, which has around two million credit card customers, has announced that from 28 May they will raise the minimum cash withdrawal fee from £3 or 3% of the amount withdrawn (whichever is greater) to £5 or 3% of the amount.

An Egg spokesperson said: “The aim of this move is to discourage people from making small cash withdrawals. Those who tend to do this are often facing financial difficulties and might be having problems obtaining cash, therefore they pose a higher risk of being unable to repay the money.”

So if you were to withdraw £20 from a cash machine with your credit card, you’d be charged an extra 25% of the amount you took out – just for the privilege! This charge also applies to withdrawals made overseas, which also incur an additional 2.95% foreign exchange fee.

As it is generally people who are desperate for cash that use their plastic in this way, there are concerns from debt advice organisations that they will see increased numbers of people seeking professional debt solutions as a result.

Debt advice organisations have expressed their concern that not only will people with debt problems be punished initially with the expensive withdrawal fees, but they will then face ongoing interest at a high rate for using their card in this way. Some of the lowest rates for cash withdrawals on a credit card are still over 22% higher than the current base rate of interest – with the average interest on cash withdrawals being charged at 26.7%.

Many debt help organisations offer help and advice for people who are struggling with their finances, and provide solutions such as a debt management plans or IVAs to help combat credit card debts.

Debt management and IVAs offer a way for people with financial difficulties to regain control of their finances whist still repaying their unsecured balances. These debt solutions enable outstanding amounts on personal loans, overdrafts, store cards and credit cards to be gathered into one affordable monthly payment – which is rescheduled over a longer period to make it more manageable.

Following our free debt and IVA advice, we may recommend an Individual Voluntary Arrangement (IVA) as the most appropriate solution. This means that you could be clear of all unsecured debts once the IVA is complete (usually within five years).

Alternatively one of our other debt help programmes may be more suitable – such as a debt management plan. This would still enable debts to be repaid at a more affordable level.

Egg is not alone in raising charges and other banks are increasing the minimum withdrawal fees accordingly.